The coordinated trip by German Chancellor Angela Merkel and French President Francois Hollande comes as pro-Russian separatists advanced on a railway hub held by Ukrainian troops and NATO announced a new rapid-reaction force to defend eastern Europe.

Alliance defence ministers fleshed out plans for a 5000-man force that could start deploying within 48 hours and ultimately put 30,000 troops in the field, to be run by a rotating cast of European militaries.

US Secretary of State John Kerry (right) told Ukrainian President Petro Poroshenko Washington "will not close our eyes" to Russian tanks. Photo: AP

The 28 allied countries will "ensure that we have the right forces in the right place at the right time", NATO Secretary-General Jens Stoltenberg said on Thursday after the meeting in Brussels.

From bases in their home countries, troops in the new force will take two to seven days to move into action. It will replace an older force that was limited to 13,000 troops with far slower response times. The alliance said it will abide by a 1997 pledge to Russia not to base "substantial combat forces" near Russia's borders.

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NATO will expand a corps headquarters in Szczecin, in north-western Poland on the German border, and is considering setting up a divisional headquarters in Romania.

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With Washington talking of arming Ukraine for the first time, US Secretary of State John Kerry also visited Kiev. He had no plans to go to Moscow and was not involved in the Franco-German initiative, although he supported it.

Moscow said it hopes talks with Dr Merkel and Mr Hollande would be "constructive". A Ukrainian presidential aide awaited them with "restrained optimism".

The importance of reaching a deal was demonstrated by a dramatic collapse in Ukraine's hryvnia currency, which lost nearly a third of its value after the central bank halted daily auctions at which it sold hard currency to banks.

French President Francois Hollande: "For several days Angela Merkel and I have worked on a text ... a text that can be acceptable to all." Photo: AP

Nearly bankrupt, Kiev is trying to negotiate a bailout from the International Monetary Fund, but many analysts think securing loans is impossible as long as no ceasefire is in place in the east.

German and French officials gave few details in public of the substance of their new proposals for fear of damaging the delicate diplomacy involved. Kiev and its Western allies want all forces to return to lines agreed in a September truce. The rebels, who have advanced since then, want to keep their gains.

"Together with Angela Merkel we have decided to take a new initiative," Mr Hollande told a news conference. "We will make a new proposal to solve the conflict which will be based on Ukraine's territorial integrity."

On Wednesday, the rebels appeared to have captured Vuhlehirsk, a nearby small town where government troops had also been holding out. The army said it was still contesting the town, but Reuters journalists saw no sign of areas under army control. Four dead Ukrainian soldiers lay in a garden.

"Someone should come to remove these corpses, it is inhumane to leave them here to rot," said Sergey Kopun, 50, a metal worker, emerging from a cellar where he had been sheltering with his wife and quadriplegic mother.

In Kiev, five soldiers were killed and 29 wounded in the past 24 hours, the military said. Troops had fended off two attempts to storm Debaltseve.

NATO says Russia has sent weapons, funds and troops to assist the rebel advance, negating a ceasefire in eastern Ukraine where war has already killed more than 5000.

Moscow denies involvement in fighting for territory the Kremlin now calls Novorossiya or "New Russia".

Speaking after meeting Ukrainian President Petro Poroshenko in Kiev, Mr Kerry said Washington supported diplomacy, but would "not close our eyes" to Russian tanks and troops crossing the border.

"We are not seeking a confrontation with Russia. No one is," he said. "We are very hopeful that Russia will take advantage of our broad-based, uniform acceptance of the notion that there is a diplomatic solution staring everybody in the face. That is what we want."

In Washington, US President Barack Obama's nominee for defence secretary gave the clearest signal yet that the United States could arm Ukraine. Ashton Carter told his Senate confirmation hearing he would "very much incline" toward supplying some arms.

Moscow said it would consider any US arms sent to Kiev to be a security threat.

Outgoing US Defence Secretary Chuck Hagel, making his final appearance at NATO, expressed concern on Thursday about a possible north-south divide in the alliance.

"I am very concerned by the suggestion that this alliance can choose to focus on only one of these areas as our top priority," Mr Hagel told a news conference. "And I worry about the potential for division between our northern and southern allies."

NATO allies along the northern tier of Europe are concerned about responding to Russian aggression in Ukraine, while in southern Europe, countries like Spain and Italy worry about threats from Africa and the Middle East and believe NATO needs to focus more energy there to deal with extremism and trafficking in drugs, weapons and people.